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Location: Middleburg (Jacksonville), Florida, United States

Published in Trains magazine, Railfan & Railroad, Passenger Train Journal

Wednesday, October 25, 2006

BULLETIN

2 solons charge Amtrak lawyers with wasting cash

WASHINGTON – Two House Republican charged today that a federal review of Amtrak’s extensive use of outside legal firms uncovered numerous examples of mismanagement and lack of oversight for more than $100 million in taxpayer-financed legal fees over three years between 2002 and 2005.

The joint probe by the Amtrak Office of Inspector General (IG) and the U.S. DOT Inspector General was requested by Rep. John Mica (R-Fla.), a senior member of the House Transportation and Infrastructure Committee, and Committee Chairman Rep. Don Young, R-Alaska.

The main objectives of the review were to determine whether Amtrak and the federal government received “fair and reasonable value for the legal fees that Amtrak spent for outside counsel” and whether Amtrak’s in-house counsel properly managed and monitored the operations and billings by the private legal offices.

“Today, we have found that Amtrak’s Legal Department was not properly maintaining legal and billing records, failed to consistently prepare and manage budgets, and never even conducted audits despite documented cases of over-billing, errors and the prohibited practice of block billing,” said Mica.

“Some reform efforts are underway, but both the costs and management of unaudited, poorly administered contracts for outside legal services must be brought under control,” Mica added.

“The financial mess at Amtrak’s legal department is much worse than any of us on the Committee could have anticipated,” said Young.

“Millions and millions of federal dollars have been doled out to private law offices by Amtrak’s legal department but the paper trail is clearly incomplete.”

Young said, “Both the Amtrak and DOT Inspectors General have determined that Amtrak’s legal department has not followed its own rules and procedures for working with outside counsel and continues to provide millions of dollars to these outside firms each year without adequate oversight.”

The probe focused on the top 10 outside law firms hired by Amtrak between June 2002 through June 2005. These top 10 firms billed Amtrak for more than $40 million in fees out of the estimated total of $102 million Amtrak dispersed to outside legal firms during this three-year period, but a press release from both solons did not name the legal firms.

The pair charged Amtrak did not properly manage outside counsel “in a manner that limited costs and protected Amtrak’s interests,” Amtrak “did not enforce guidelines which would have been effective in protecting Amtrak’s interests and preventing overcharges,” and that Amtrak “signed agreements with one law firm that significantly supplanted the guidelines and voided its protections.”

The joint Amtrak/DOT Inspector General review determined that Amtrak’s in-house counsel did not enforce the required guidelines and did not adequately review outside counsel legal billings, properly manage outside counsel staffing and rates, prevent prohibited billing practices, nor “perform audits anticipated by the agency’s guidelines.”

All top 10 firms submitted invoices with block billing, Mica said, “a practice prohibited by the guidelines.” Block billing lumps different tasks together under one entry on an invoice, obscuring the cost of each task.

During the three-year review period, 31.4 percent of fees invoiced by the top 10 firms were block billed, Mica said, Amtrak’s in-house managing attorneys failed to question or disallow block billing, even though it is easily recognized and prohibited, and one firm block billed almost exclusively until September 2005.

Amtrak’s in-house counsel primarily selects large, metropolitan firms with high rates, Mica said.

“Some of the rates Amtrak is paying are generally high, from over $450 per hour for an eighth-year associate (2002) to $575 per hour for a partner (2004).” He added, “The guidelines state that Amtrak expects at least the same discount offered to an outside firm’s other government clients or large corporate clients, whichever is lower.”

The Amtrak and DOT Inspectors General “found no way to verify that the discounts Amtrak obtained were the best to which they were entitled, nor did they find any indication that Amtrak attempted to verify that the discounts were in fact given,” Mica alleged.

No evidence was found that Amtrak in-house counsel ever conducted an audit of invoices, one firm’s invoices frequently did not show hourly rates or the time spent on each task, as required, so it was impossible to determine whether invoices totaling $143,000 were correct and only one of the top 10 firms in the review routinely submitted receipts or other evidence of reimbursable expenses.

Mica added that two outside counsel firms voluntarily disclosed billing errors when they became aware of the Amtrak-DOT Inspector General review. Each firm proposed to refund about $30,000, but one firm has withdrawn its offer.

Mica charged “One of the firms most frequently used by Amtrak circumvented the budget requirement and other requirements in the guidelines by negotiating several agreements from 2003 to 2005 that supplanted the guidelines. The terms of the agreements were substantially less beneficial to Amtrak and more beneficial to the law firm than were the terms required by the guidelines.”

The IGs reported finding the use of highly paid attorneys and staff for work that is traditionally performed by lower-paid staff, Amtrak has no record of approval for changes in hourly rates, and records indicate duplicate payments on some accounts.

Some Managing Attorneys rely on outside counsel to maintain files and have no recourse if the firms are unable or unwilling to provide the records, the two House members said.

“Amtrak in-house attorneys, including two high-ranking officials, were unable to readily and promptly produce their own files related to the top billing firm. In-house counsel said the files ‘must have been thrown out,’” they stated.

The also alleged Amtrak in-house counsel was frequently unable to respond promptly and thoroughly to requests from the Amtrak/DOT Inspector Generals.

“Congress has a responsibility to conduct aggressive oversight of Amtrak, especially with a taxpayer subsidy of over a billion dollars a year. Unfortunately, today’s IG report discloses yet another example of problems with our nation’s current passenger rail service operations. Amtrak’s management of outside legal services has been found to be in serious disarray, with virtually no attention focused on costs and expenditures.”

Mica charged once again that “We have found that the taxpayers are subsidizing some passenger tickets over $600 each, and Amtrak is losing over $600 million each year on long-distance routes. “We have found that the taxpayers are underwriting Amtrak’s food and beverage costs at a loss of $83 million a year, and that Amtrak was spending $2 for every $1 it makes for this service.”

Mica has long complained that Amtrak is wasting money.

“We have found that the taxpayers are underwriting an Amtrak Mechanical Department that had no quality control system in place and was rife with waste, fraud, abuse and mismanagement, and now, today, we have found that Amtrak’s Legal Department was not properly maintaining legal and billing records, failed to consistently prepare and manage budgets, and never even conducted audits despite documented cases of over-billing, errors and the prohibited practice of block billing.”

He said, “Some reform efforts are underway, but both the costs and management of unaudited, poorly administered contracts for outside legal services must be brought under control.”

Young echoed Mica’s remarks.

“I want to be clear that I believe Amtrak is a critical part of our delicately balanced transportation network. I strongly support passenger rail in America, but when Amtrak requires in excess of $1 billion in taxpayer subsidies each year to function, I believe it’s my duty to ensure Amtrak runs efficiently and doesn’t waste taxpayer money.

“For years, Amtrak boasted it was on a ‘glide path’ to operational self-sufficiency. Clearly, those assertions were dishonest to Congress and the American taxpayer and did not reflect its true financial condition. Now we find one more department where the money Amtrak has been receiving is being spent with little oversight. Waste has been found in every Amtrak department that we have reviewed in the last four years.”

Young said, “Congress and the public deserve nothing less than complete, honest, accurate and timely information on how this money is being spent,” and added, “Amtrak is continually showing us it is incapable of effectively spending the $1 billion in federal funding it receives each year. One billion dollars a year is a lot of money and could accomplish a lot towards improving Amtrak’s passenger rail service if it wasn’t wasted on massive food and beverage losses and undocumented and questionable legal billings from outside private law firms.

“The financial mess at Amtrak’s legal department is much worse than any of us on the Committee could have anticipated. Millions and millions of federal dollars have been doled out to private law offices by Amtrak’s legal department but the paper trail is clearly incomplete.”

He stated, “Congressman Mica and I requested this investigation based on the numerous other financial and operational irregularities discovered in previous federal probes. Since investigations began several years ago, more than 200 Amtrak employees outside the law department have been fired for theft or financial irregularities with the company. Countless problems have been uncovered in Amtrak’s maintenance department, and Amtrak has accomplished what most people thought would be impossible – it loses $83 million a year in its food and beverage operation, losing $2 for every $1 it receives. We intend to continue our oversight of Amtrak and these problems until we finally get some real reforms in place and see some tangible results.”

A copy of the report is on the committee website at www.house.gov/transportation

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